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Sovereign Wealth Funds

Norway’s $1 trillion oil fund taken to task over rising cost

Pedestrians cross a city square in Oslo, Norway.

Norway's Finance Ministry rejected a proposed cost ceiling from the nation's wealth fund, questioning the investor over the rising expense of managing the $1.1 trillion piggy bank.

The cost limit will be set at 7 basis points of assets this year, lower than the 7.5 basis points proposed by the fund, according to a letter sent by the Finance Ministry. The budgeted costs for 2018 are at 5.6 basis points, implying a large difference to the upper limit. It also said that internal costs are projected to rise 16% next year.

"In the ministry's view, it's important that the cost framework gives incentives for good control and cost-effective management," Director General Espen Erlandsen and Iver Berge Vikoren, an adviser, said in the letter. "The margin of safety between the cost frame and the budget should therefore not be too high."

The ministry said that management costs have risen "significantly over time" and are projected to hit 3.5 billion kroner ($434 million) this year, up from 2.1 billion kroner in 2014. The ministry pointed out that based on its 2017-2019 strategy plan the fund is now running ahead of schedule in terms of employees.

"A significant part of the increase can be attributed to exchange-rate movements and the development of property management, but a significant part is also due to cost growth beyond normal price and wage growth," they said in the letter.

Costs have been rising for the fund amid an expansion into real estate over the past years. The fund now also faces potentially further increases as the government evaluates whether to allow it to invest in infrastructure and private equity.

The ministry said it sets the cost frame once a year based on the fund's prevailing strategy.

"Norges Bank has a high cost awareness in the management of the Government Pension Fund Global, and our management costs are lower than comparable funds internationally," said Oystein Olsen, central bank governor, in an emailed comment. "We take note of the letter from the Finance Ministry and note that our management budget for 2018 is well within the framework set by the ministry," Mr. Olsen said.